March 21 (Bloomberg) -- Hewlett-Packard Co. Chairman Ray
Lane and two other board members were re-elected in slim
majorities in a referendum that demonstrates growing dismay over
the company’s performance and acquisition of Autonomy Corp.

Shareholder advisers had said that the board failed to
properly vet the acquisition of software maker Autonomy, and
recommended that investors vote against Lane and some other
members of the 11-person body. Lane garnered 59 percent of votes
cast, while director G. Kennedy Thompson received 55 percent
support and John Hammergren received 54 percent. Last year, all
three were backed by at least 80 percent of the vote.

An $8.8 billion Autonomy writedown, disclosed in November,
capped a three-year stretch of management upheaval, strategy
shifts and slowing growth that hammered the company’s stock
price and complicated the turnaround effort by Chief Executive
Officer Meg Whitman. The directors’ failure to win support from
a bigger majority leaves Hewlett-Packard little choice but to
revamp its board, said Erik Gordon, a professor at the Ross
School of Business at the University of Michigan in Ann Arbor.

“If the company wants to put on more than a cynical
charade of listening to its stockholders, the directors will
resign,” Gordon said. “Negative votes in the 30 and 40 percent
range are a giant ‘no confidence’ message.”

The shares declined 2.6 percent to $22.32 at the close in
New York. Hewlett-Packard today increased its quarterly dividend
by 10 percent for the second straight year. The dividend will
rise to 14.52 cents, though the payout on April 3 will remain at
the current level of 13.2 cents.

At the meeting yesterday, held at the Computer History
Museum in Mountain View, California, Ernst & Young LLP was
ratified as Hewlett-Packard’s outside auditor with 85 percent of
the vote, and the company’s executive pay plan also passed,
gaining 75 percent approval.

Board Faulted

In recent weeks, Institutional Shareholder Services Inc.
and Glass Lewis & Co. faulted the board for the writedown, which
followed the discovery of accounting improprieties, and for
depleting the stock’s value through years of mismanagement. ISS
had recommended investors vote against chairman Lane and long-serving directors Hammergren and Thompson. Glass Lewis also
urged shareholders to remove Hammergren and Thompson, as well as
venture-capital investor Marc Andreessen and lead independent
director Rajiv Gupta.

Whitman, addressing the assembled shareholders, said
Hewlett-Packard needs to invest more in research and development
and rebuild its network of resellers.

“Certainly the last three or four years have been tough,”
Whitman said. “My view on the board of directors is they are
helping turn Hewlett-Packard around.”

Investor Dissatisfaction

Even though the recommendations didn’t lead to the ouster
of directors, they underscored dissatisfaction with oversight of
a company beset by slowing growth and upheaval in executive
ranks.

“What the shareholders and proxy advisers are suggesting
is accountability,” said Brent Bracelin, an analyst at Pacific
Crest Securities LLC in Portland, Oregon. He has a sector
perform rating on the shares, the equivalent of a neutral
recommendation. “When you have tech companies that are
struggling, people want a scapegoat.”

The company has shown early signs of progress under
Whitman, Hewlett-Packard’s fourth CEO in three years. It
forecast fiscal second-quarter profit that topped analysts’
estimates last month amid cost cutting and rebounding demand for
enterprise services.

“Despite what you may have read in the headlines, we are
on a solid financial foundation,” she said yesterday, adding
that she expects the company to grow in 2014 and 2015. “We have
to get revenue growing again.”

Lane’s Role

The push to step up growth was hampered in November, when
Hewlett-Packard disclosed that it had discovered accounting
irregularities at Autonomy.

Lane is the former president and chief operating officer of
Oracle Corp., the largest maker of database software. He brings
to Hewlett-Packard decades of experience in business computing,
an area it’s counting on to reignite growth. Given his position
and closeness to former Hewlett-Packard CEO Leo Apotheker, who
orchestrated the Autonomy deal, Lane should have been more
vigilant in assessing the purchase, according to ISS.

“Shareholders reasonably expected Lane to exercise good
judgment and oversight; in that respect he may bear the most
responsibility in the boardroom with respect to the Autonomy
failure,” the advisers said in a March 4 report.

Chief Financial Officer Cathie Lesjak also opposed the
deal, Glass Lewis pointed out in its March 1 report.

Autonomy Letter

The former executive team of Autonomy, led by founder and
ousted CEO Mike Lynch, sent a letter to shareholders calling
HP’s allegations of accounting impropriety “aggressive and
unusual.”

The group published a list of five suggested questions to
investors that call for Hewlett-Packard’s board to provide
evidence of its claims and details about how it calculated the
impairment charge from the acquisition. Lynch and his team have
consistently denied that they mishandled the company’s finances
and point to audit reports from Deloitte LLC that found no
irregularities.

“The problem with the Autonomy acquisition by HP lies in
the mismanagement of that business by HP under its ownership,
making it impossible for Autonomy to deliver on HP’s
expectations,” the team said in the letter. “We refuse to be a
scapegoat for HP’s own failings.”

Lane, who wasn’t opposed by either of the two advisers last
year, was re-elected with 96 percent of the vote at the 2012
shareholder meeting.

CtW’s Response

After vote results were announced yesterday, CtW Investment
Group, which advises pension funds affiliated with the labor
group Change to Win on corporate governance, called on the board
to meet with investors to choose replacements for Thompson and
Hammergren. CtW had met with Lane and other directors last month
to push for the two directors’ removal.

Yesterday’s vote was “a challenge to business as usual for
the HP board following a decade of failures at HP,” Dieter
Waizenegger, executive director of the CtW Investment Group,
wrote in an e-mailed statement. “The board needs to consider
significant changes to its membership to restore investor
confidence in the turnaround, and rekindle the company’s
reputation for in-house-creative culture, and not high-risk
acquisitions.”

Hewlett-Packard Director Ralph Whitworth said there may be
changes coming to the board, and investors can expect some
evolution in the coming years or months.

“This board is among the best I’ve seen,” Whitworth told
shareholders. “Having said all that, all boards should evolve,
especially when they’ve had the recent past this one has.”

Stock Decline

Even after a 68 percent rally in Hewlett-Packard shares
since Nov. 19, the day before the Autonomy writedown was
announced, the stock has lost half of its value since Aug. 6,
2010, the day Mark Hurd departed as CEO.

Hurd’s exit, after the board said he violated the company’s
standards of business conduct, kicked off a three-year period of
management upheaval and strategy shifts that included
Apotheker’s troubled 11-month tenure.

Whitman has said that turnaround will take half a decade,
and Hewlett-Packard is projected to report declining sales for
the next three years, according to data compiled by Bloomberg.

“You will not have to wait until 2015 to see results,”
Whitman said at yesterday’s meeting.